Your Wealth Reserve: Why do investors “settle” for the ‘average’ (market index) returns?

Why do investors “settle” for the ‘average’ (market index) returns?

Most advisors and brokers have used this statement to convince their clients to give them all their money to manage. Most investors don’t know that this is a trick question. They don’t know what the average annual index return is AND their sales person does not tell them that they will never earn more than the index return over time. Many advisors can show a year when they did better than the index but 95% can’t do better over time. Despite bad news, my market index fund is up 29%. Over time, the actual data shows managed funds earn 3.79% vs 11% for index funds. No sales person is going to tell you that the appliance they sell is cheaper at the discount store. Unfortunately, most folks don’t learn the facts about managing money in school. But this is actual index return since 1991. And using a low-cost fund, you can earn this return too:

2020 18.38

2019 31.74

2018 -4.41

2017 21.94

2016 11.93

2015 1.31

2014 13.81

2013 32.43

2012 15.88

2011 2.07

2010 14.87

2009 27.11

2008 -37.22

2007 5.46

2006 15.74

2005 4.79

2004 10.82

2003 28.72

2002 -22.27

2001 -11.98

2000 -9.11

1999 21.11

1998 28.73

1997 33.67

1996 23.06

1995 38.02

1994 1.19

1993 10.17

1992 7.60

1991 30.95

Over time, your "Average" return is 12.22 %. This beats most professional returns because fees and poor market trading costs 1-2% every year. Your advisor takes the fees off the top so you never actually see the bill for ‘managing’ your money. Annualized return after inflation (Real inflation-adjusted return) is 10.72 %. So your $250 a month would have grown to $1,049,991 not $664,555.

Pay less; Earn more: https://www.amazon.com/Lies-Financial-Advisors-Told-alternatives/dp/1478281545

You don’t need an annuity—you already have one.

When your advisor offers a “guaranteed lifetime income” using an annuity, you need to get the facts about this option before you sign the contract. You can’t cancel an annuity once you sign because there are surrender charges—up to 12%—decreasing over time. You already have an annuity with your retirement money in an IRA or rollover IRA from your 401k or 403b money. The custodian of your IRA is required to distribute your account according to IRS rules called Required Minimum Distributions (RMDs) so you will have earned income which is taxable. You got tax-deferral with your retirement plan at work and now you must pay tax on the deferred earnings. These monthly or annual distributions are calculated using an IRS table that takes each year’s IRA balance and calculates a percentage each year you are alive. If you have set your IRA portfolio to keep growing, your RMD may be higher over time. Most annuities don’t do that—most offer fixed amounts that ignore the inflation bite. Within 20 years, that amount might have HALF the buying power for you.

Consider wisely: https://www.amazon.com/What-your-RMD-much-spend/dp/1718946716

How to guarantee a monthly income for a disabled adult child

When a reader asked me how to make sure their adult child could have an income for life guaranteed, I suggested an immediate annuity. The reader thought they could just leave their 401k to the adult child with the beneficiary designation. This is not a good idea. When a person inherits a 401k, the funds typically must be distributed in 10 years or lump-sum depending on the 401k plan. In either case this may result in an immediate tax liability for the beneficiary. Immediate annuities are low-cost contracts set up with an insurance company to pay a certain amount each month for life. This immediate annuity cannot be cashed in if someday their disabled adult child decides to spend the premium in one lump sum. A 40 year old female annuitant can receive over $600 a month for life for a premium of $200,000 today. This 75 year-old parent can pay more to have the amount keep pace with inflation. Another option is to buy a contract with a cash-refund provision in case of early death. Another option would be to buy another immediate annuity to boost the monthly income after inflation reduces the buying power in 10 years. A more expensive option would include making a formal trust either now or at death. The reader does not need an advisor to buy this low-fee annuity so the monthly benefit is more.

https://www.amazon.com/Internet-Money-Smarts-More-Less/dp/1493643223

Wealthy use bankruptcy for benefits and avoid responsibility

Bankruptcy was supposed to help people get back on their feet after a disaster not of their own making. It was termed a “fresh start” so that we do not have to spend our lives in debtor’s prison. Instead, it has become a way for the wealthy to take good assets out of the company they drove into the ground and leave those hurt with nothing. Bankruptcy has turned capitalism into a means of screwing us. Take the case of the Sacklers: their Oxy pills killed over 500,000 people and they take $10 BILLION from a bankrupt company and gain immunity from prosecution. Most states and victim families get $4.5 billion to split. Another example is the king of bankruptcy: Don Trump. Trump has filed Chapter 11 bankruptcy for his companies six times. Trump "put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses, and other payments.” Trump did not pay his bills and put many small businesses out of business. "The burden of his failures," according to the NY Times, "fell on investors and others who had bet on his business acumen." Bankruptcy is also a way to avoid paying taxes. Trump claimed company losses against his personal income for years. The wealthy have learned to turn the American system into Socialism for the Rich.

Privatize profits; socialize losses: https://www.amazon.com/Americas-Socialism-Rich-little-people-pay/dp/1535218584

Another reason NOT to pay an advisor: portfolio tricks

At a recent advisor conference, they were told, “Technology can make clients feel like they’re getting a customized portfolio experience, even though it’s standardized behind the scenes.” To make more money, panelists at the CFA Society of Philadelphia’s annual Private Wealth Management Conference said, “advisors are going to have to free up some capacity to accelerate their growth, and introducing some standardization into the investment process can help them do that.” Fidelity analyst: “One of the most the common things we see is that advisors have 100 clients with 100 different portfolios with about 300 different investments or security tickers. You got to ask yourself the question, how many investments can you keep track of as a fiduciary?” Another presenter said advisors should keep it to nine model portfolios. So your advisor is charging you 1-2% a year for a ‘tweaked’ standard model. An advisor’s presentation can “make the client feel it’s customized, but at the end of the day, it’s very systematic and structured in the background.” Now you can avoid the portfolio trick. Use the ultimate automatic robo.

Pay less; get more: https://www.amazon.com/Best-Robo-Advisor-Ultimate-Automatic-Management/dp/1537111957

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